David Stockman: Soak the Rich

By Robert Milburn

David Stockman is at it again. The Reagan-era budget director caused an uproar in 1981 by publicly decrying the moves of his boss to spur the economy with tax cuts. Now a private investor and author, he’s pushing for a huge new tax on big earners. Stockman would subject the nation’s top 10% of households to a levy equal to 30% of their wealth, payable over a decade. Without it, he maintains, the U.S. will wind up in a horrific, Greece-style debt wreck.

Stockman, 66 years old, recently talked up his plan at an ­unlikely forum: New York City Junto, a monthly soirée of libertarians organized by hedge-fund manager Victor Niederhoffer. The tax-averse crowd listened politely as Stockman laid out his case. For starters, he said, the long-term budget outlook is much bleaker than the “rosy, Keynesian nonsense” put out by the Congressional Budget Office. Stockman reckons U.S. debt, now $17 trillion, is headed to $30 trillion, or 150% to 200% of gross domestic product. “That is a nonstarter, and that takes the system down,” Stockman said. The CBO’s baseline projection puts debt at 130% of GDP by 2050.

Deeply cynical about Washington, Stockman has stuffed most of his own millions into short-term bonds.
Credit: Caryl Englander/Bloomberg News

The wealth tax, Stockman said, could go a long way toward stabilizing things. It would be part of a broad package of measures he has in mind to bring the deficit down and keep it low. The tax wouldn’t be permanent—it could be lifted in 10 years or so, when debt has dropped to a more manageable 30% of GDP. Interestingly, Stockman, a multimillionaire, would be subject to his own tax.

But Stockman is the first to admit that the proposal may never fly in Washington. “I’m a pessimist, so I think we’re going down the drain and can’t restore free-market capitalism, because it’s politically unrealistic to say that we can stop this enormous doomsday machine,” he said.

He scoffed at the current happenings in Washington, saying threats of a default are all but hollow. Having overseen four government shutdowns himself while at the Office of Management and Budget under Reagan, he ­explained, “The untold truth of the matter is that there is nothing in the Constitution or law that says if the secretary of Treasury runs out of borrowing authority that he cannot prioritize, allocate, and use the available revenue flow to meet important requirements.” Essentially, the Treasury has the power to ensure the U.S. does not default by making sure its $30 billion or so in monthly interest payments are funded with some of its $200 billion-plus in monthly tax revenue, he said. Others say that even prioritizing would be perceived by the world as default.

Stockman has always sparked controversy. In his 1986 memoir, The Triumph of Politics: Why the Reagan Revolution Failed, he famously bashed President Ronald Reagan, his followers, and their supply-side economics—the idea that upper-bracket tax cuts spur economic growth.

After nearly 30 years in ­private business, Stockman ­­re-entered the political fray earlier this year with a best-selling book, The Great Deformation: The Corruption of Capitalism in America. In typical fashion, the book decries politicians on the left and right, accusing both of perverting free markets and laying the seeds of the financial ­crisis.

Politicians aren’t the only problem. Stockman sees the Federal Reserve, starting in the Greenspan era, as a serial stock-market bubble maker; he points to the dot-com implosion and the Great Recession as Fed-manufactured crises fueled by historically low interest rates. Unlike many critics, Stockman does not see hyperinflation in the offing right now. Instead, his big fear is that the Fed is once again overheating the stock market.

He has positioned his own investible assets for the worst, ­essentially stuffing them under the mattress. He told the Niederhoffer gathering that all of his money is earning nominal returns of about 0.4%, mostly in short-duration bonds, a preservation ­position he calls ABCD—anything Bernanke can’t destroy.

When Stockman wrapped up, Niederhoffer stepped to the ­podium and bluntly disagreed. Handing Stockman his check for the speaking engagement, Niederhoffer called Stockman’s investment ideas “propaganda” and pleaded that the audience not ­follow his advice. “No one believes what David believes because you’d be bankrupted over and over again if his advice were ­applied in the past,” he said. He cited numerous studies that show the stock market’s long-term appreciation. Market maven Jeremy Siegel, for instance, has reported that stocks returned an inflation-­adjusted average of 6.4% a year for the past 141 years.

Stockman listened patiently, but the two found no middle ground. “Vic, now that I have your money, I feel that I can ­respond,” Stockman quipped. Fiscal and monetary policies, he ­explained, can greatly affect investment outcomes, and therefore what happened over the past 100 years is not a sequence of timeless truisms. “It is an unfolding history in the context of what the state is doing, and we have been steadily drifting from sound economics, sound markets, sound money, and sound fiscal policy,” said Stockman.

Who will prove to be correct? We tend to side with Niederhoffer. Through good public policy and bad, stocks usually pull through for the long haul.

Add a Comment

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comment

There are 43 comments

OCTOBER 11, 2013 3:30 P.M.

Julius Cee wrote:

Agree with Mr. Stockman or not-we need more people like him to speak up their true beliefs without fear, this is the true spirit of America.
Thank you Mr. Stockman.

OCTOBER 11, 2013 3:35 P.M.

Al Peinhardt wrote:

“The wealth tax, Stockman said, could go a long way toward stabilizing things. It would be part of a broad package of measures he has in mind to bring the deficit down and keep it low. The tax wouldn’t be permanent—it could be lifted in 10 years or so, when debt has dropped to a more manageable 30% of GDP.”

Uh-huh. When the IRS was created 100 years ago, the top tax rate levied on the Rockefeller, Morgan, and Vanderbilt types was a whopping 7%.

OCTOBER 11, 2013 4:11 P.M.

Anonymous wrote:

The stock market can only go up over the long run ? Isn't that what they thought about the housing market a few years back...

OCTOBER 11, 2013 4:37 P.M.

Thomas Wynn wrote:

I agree with Mr. Stockman, but it's hard to "invest" for what he says is coming, when it never comes! The Market is rip-roaring, gold is plummeting, inflation is so non-existent that the Fed is trying to engineer a bit of it, and Yellen will carry us to a state where the Fed and un-wind their $3-trilliion in assets without rocking the market too much.

I'm for sound-money too, but if you look at the TSLA's, AMZN's, CRM;s. LNKD, Z, FB's, and such of the world, "why fight the Fed"? You can't...There's really not much safety anywhere that I can see. Maybe diamonds? You would think the Market would be feeling the effects of all this "easy money", but it rocks-'on day-after-day, immune to 47-million American on Food-Stamps, $17-trillion in long-term debt, $3 trillion on the Fed's books, and all is well! Rock'on America!

OCTOBER 11, 2013 5:37 P.M.

Chuck Sherman Jr wrote:

No David, you're wrong!!! I'm surprised at you proposing such nonsense!!! We need to cut taxes drastically across the board, cut spending by the government and quit giving money to countries that hate us!!!

OCTOBER 11, 2013 5:44 P.M.

Pete wrote:

Soak David Stockman first, see how he likes it. I say he should be allowed to keep $30,000 per year, and be permitted to have $100,000 in financial assets. Anything beyond that should be immediately transferred to the federal government. Would you like that, Dave? (Get your hands out of other people's pockets, it's immoral.)

OCTOBER 11, 2013 6:13 P.M.

Chuck Sherman Jr wrote:

I did some further research on Stockman and found that he has VERY limited private sector experience so I'm not really surprised now by his comments.

OCTOBER 11, 2013 7:44 P.M.

Jaba-the-Hut wrote:

Random confiscation to pay national debts is a slippery slope. Socialism works great until you run out of other people's money!

OCTOBER 11, 2013 8:09 P.M.

Chuck Ostrum wrote:

Now that the ACA is more or less off the table all of the budget scolds are at it again. This is just the flip side of the zillion dollar unfunded liability scare tactic. The message is simply you ultra wealthy better watch out or them wild Dems will tax your wealth away.

We are no where near the point of needing to impose a big wealth tax. Simply taxing unearned income at earned income rates could both raise revenue and lower rates across the income spectrum. Roth IRA's and pension shelters capped at 300,000 in non-taxable capital gains would encourage the small investor and stop the bloated tax shelters for high earners. Additionally we should be fixated on reducing health care cost. Unnecessary and in-effective care cost upwards of a trillion per year. That is a big bogey to chip away at and does more to reduce unfunded liabilities than small fixes that do not address the source of the problems. Budget cutting and cost cutting are not synonymous.

OCTOBER 11, 2013 8:42 P.M.

Mary wrote:

Is would stop all investment...and growth...at the end of the 10 years..a violent revolt will be in effect...with blood in the streets!

OCTOBER 11, 2013 8:47 P.M.

John wrote:

There would be no investment in new business.....growth will be negitive...at the end of 10 year..this country would be in full revolt...blood in the streets..look at Greece and the rise if the thugs

OCTOBER 11, 2013 9:27 P.M.

Buster B. Brief wrote:

I would be in favor of this if all people would stop committing crimes and study hard in school so they could learn the skills to get a job in today's market.

OCTOBER 11, 2013 9:29 P.M.

Lakin Leslie wrote:

Stockman is a crackpot. Just ask Ronnie.

OCTOBER 11, 2013 9:48 P.M.

Anonymous wrote:

HE IS,EVIDENTLY, DRINKING KOOL AID.

OCTOBER 11, 2013 10:43 P.M.

Dave wrote:

Believe he's right about innevitable collapse. Once a republic gives every adult without minimum requirements the vote and everyone is co-opted into federal largess (SS etc.) there will be no turning back from ever expanding spending, unsupported by actual wealth creation. Don't understand why he would propose 30% confiscation of wealth. He must realize that too would go down the rabbit hole Another manifestation of "Liberal White Guilt" self loathing?.

OCTOBER 11, 2013 11:14 P.M.

Ed H. wrote:

Rarely has a human being had a talent for being so consistently wrong as David Stockman. What we need to create an expanded, growing middle-class is a program of pro-growth fiscal policies a la Canada, Singapore, Switzerland and Sweden (yes, Sweden ... check out the policy-change behind their current economic renaissance).
No one would pay any attention to this guy if Reagan hadn't made that one bad hire ... instead of hearing from George Shultz - much wisdom yet rarely seen or heard in retirement - we get his opposite number in spades! Like a bad penny that keeps turning up, we just can't rid ourselves of this nonsense.

OCTOBER 11, 2013 11:40 P.M.

B David R wrote:

He has a good point, if the capital of wealthy is not engaged more aggresively in the economy, were startups create wealth, jobs, profit & tax revenue- it would be better off reducing the country's debt so a future generation could benefit. We have to much capital invested with a "not lose" attitude, or invested for modest gains in ROI, jobs, & the national Economy.

OCTOBER 11, 2013 11:46 P.M.

Mike M wrote:

Stockman makes a pretty wild assumption - that once the debt is brought down, politicians will reign things in and keep it down rather than promising a new set of constituents a new array of handouts. Where Dave may be right is that we're going down the drain. It's very likely that this doesn't end until there's - quite literally - blood in the streets.

OCTOBER 12, 2013 12:03 A.M.

Terry wrote:

I have two words for Mr. Stockman. One is a verb, and the other is a pronoun.

OCTOBER 12, 2013 12:13 A.M.

R West wrote:

I wonder how that great liberal, Warren Buffett, would like this idea. Afer all, it would only cost him around 15 billion.

OCTOBER 12, 2013 12:43 A.M.

Michael G wrote:

Mr. Stockman foresaw the results of Reagan's tax cuts for the rich from 70% to 50% and Arthur Laffer's Voodoo economic policies and Lafter curve.

OCTOBER 12, 2013 11:22 A.M.

GranTorino wrote:

Full salute to the Junto group for inviting someone with such contrary opinions to traditional Libertarian thinking. While I disagree with Stockman, I am sure the entire group benefited from the discussion. Thanks to Penta for covering it...even if it does give someone whom I disagree with publicity:)
I greatly love the "ABCD" acronym though-clever.

OCTOBER 12, 2013 9:54 P.M.

wsd wrote:

30% then what, it will be spent and produce nothing, and in less time then it takes to flsuh the tiolet they will want another 30%. Koock knock, we have senate that can't pass a budget and a president that wants all the money so he can direct to it political favorites, outcomes are irrelevant . There will never be enough until they take it all.
In fact one could argue that the run up in spending, without adding value anywhere is intentional, so they can have a call on our own future income streams.

OCTOBER 13, 2013 12:35 A.M.

Bruce J Fernandes wrote:

Would love to finally see the Hollywood left exposed for the hypocrites they have always been as they would fight any wealth tax to the end. Maybe Alec Baldwin would really leave the US for good if there was ever a wealth tax implemented into law.

OCTOBER 13, 2013 1:12 P.M.

Marco wrote:

I find it completely obscene that David does not even consider reducing the size of Government rather than taking from those who have worked for their money. I have worked closely with the government. We could very easily reduce it by 40% while maintaining those functions we need.

OCTOBER 13, 2013 2:35 P.M.

Anonymous wrote:

SOAK DAVID STOCKMAN, FIRST.

OCTOBER 14, 2013 2:19 A.M.

curtiss wrote:

I think it's only fair to say who are the "Rich." According to this guy it seems the Rich are anyone making over 116K$ per year regardless of assets. Clearly that's not Rich. Perhaps if you are flipping burgers but that's peanuts in the scheme of who and what is Rich. A case I think could be made for punitive taxation on the Rich but it's the top .05% that are the truly rich, not the top 10%, to say otherwise I think is truly disingenuous.

OCTOBER 14, 2013 4:13 A.M.

bob cane wrote:

Hey Dave,get lost. and take yer bogus pal Barry with you.

OCTOBER 14, 2013 9:33 A.M.

Denver wrote:

Better to stop all Federal government transfer payments, disband NATO and scuttle the 5th fleet.

OCTOBER 14, 2013 11:22 A.M.

Trajan Rex wrote:

A 30% wealth tax would just disappear down the black hole that is runaway government spending.

OCTOBER 14, 2013 12:06 P.M.

TheBetterOff wrote:

Finally it takes an insider to admit openly that the largest transfer of wealth in US history from the lower/middle class to the upper class originates from Reganomics, Now the rich owns more than 75% of all the wealth in US. The majority of the middle class is actually worst off comparing to their forefathers. This disparity in wealth distribution causes discontent, fear, unemployment, and market uncertainties. How long can we continue in this direction without a change in course?

Thank you for speaking out, Mr. Stockman.

OCTOBER 14, 2013 12:48 P.M.

Curtiss wrote:

So you can't say this guy is spot on when he defines the Rich as anyone or any family making income over 116K$ per year this is not Rich. The Rich are the .05% and they have Unearned Income/ Assets over Earned Income. Taxing 10 top 10 % will only put a ceiling on anyone even having a shot at upward mobility or basic financial independence. You want to tax the Rich tax the Endowments, the .05% and the Corporations but don't trot out the banner 'Tax the Rich" and then set the bar so low to include the not Rich that's just a lie that undermines your credibility and only serves to insure that the Truly Rich have no competition.

OCTOBER 14, 2013 1:59 P.M.

Paul Murray wrote:

30% tax on the rich to reduce debt and avoid a Greece like crash. Makes sense. But not when you consider Washington will simply add to the overdone spending that got us into this mess. Eventually we will run out of other people's money.

OCTOBER 14, 2013 7:01 P.M.

Anonymous wrote:

The guy is a buffoon. Not sure why he gets coverage. Let's see how his "private investments" are doing.

OCTOBER 14, 2013 7:02 P.M.

Julius Cee wrote:

He is an author? Really? Has anyone read any of his books?

OCTOBER 16, 2013 11:54 A.M.

U.S. Blues wrote:

This is a no-brainer. There is really not much to be clawed back by a steeper and more progressive income tax. But an asset tax on massive concentrations of wealth to correct decades of bad public policy and skewed pro-1% or pro-5% environment, would do the trick. However, nobody who I respect really wants a wealth transfer via the agency of the US Federal government. We have, top to bottom, terrible government in the U.S., near the bottom rung of our society by ethical, accountability, talent/competence standards. That's how we got to this point. The tax code offers some hope though. It should be changed to remove the egregious pricing distortions of our time -- no more mortgage interest, health care premium, or stock-based compensation deductions. No more capital gains break at the expense of wage income. Insider subsidies, all very discouraging and cause for outrage and unrest, have to end. Pretty bleak.

OCTOBER 17, 2013 10:34 P.M.

Brian wrote:

It is amusing to read that "The tax wouldn’t be permanent—it could be lifted in 10 years or so, when debt has dropped to a more manageable 30% of GDP." Once "Uncle Sam" gets a taste for 3% annually of your assets, he will never be weaned.

Also, the enforcement would be an interesting concept. i.e. A retiree who paid $100,000 for a house now worth $1m would struggle to pay an extra $300,000 over the space of 10 years to keep his house.

OCTOBER 18, 2013 1:03 A.M.

Steve Self wrote:

Stockman assumes the government is a smart allocator of capital and it obviously is not - otherwise we would't have a deficit to begin with. Soak the rich? the most efficient allocators of capital? the job creators? the venture capitalists that help to create new jobs and technology? Wow, great idea. Give the money to the government. Outstanding idea Stockman. Move to Europe and take Obama and congress with you - you may think you're different but your idea's will take us to the same place ax those morons. Sickening.

OCTOBER 18, 2013 2:12 P.M.

Frank wrote:

Stockman was a knucklehead in 1981 and he's still a knucklehead in 2013.

OCTOBER 19, 2013 11:29 A.M.

Sportsguy wrote:

Stockman will be correct eventually IF the current government behaviors are not changed in the future. All prognosticators have that weakness that if the current behavior is not changed, but with the government, behaviors change after each election. . .

OCTOBER 25, 2013 9:51 A.M.

The head loser wrote:

Take 100% of Stockman's net worth...he doesn't deserve it for proposing such socialistic crap.

It is high time to change the Reverse Robinhood tax policy of the last three decades and ask the rich/ultra rich to shoulder more responsibility of our country’s capital budget. To our rich people: much is given, much is required.

JULY 3, 2014 12:27 A.M.

DBlu wrote:

"Through good public policy and bad, stocks usually pull through for the long haul." This is a pathetically weak response to a strong argument and a timely warning.

To report offensive comments email

About Penta

Written with Barron’s wit and often contrarian perspective, Penta provides the affluent with advice on how to navigate the world of wealth management, how to make savvy acquisitions ranging from vintage watches to second homes, and how to smartly manage family dynamics.

Richard C. Morais, Penta’s editor, was Forbes magazine’s longest serving foreign correspondent, has won multiple Business Journalist Of The Year Awards, and is the author of two novels: The Hundred-Foot Journey and Buddhaland, Brooklyn. Robert Milburn is Penta’s reporter, both online and for the quarterly magazine. He reviews everything from family office regulations to obscure jazz recordings.